U.S. Ecology (ECOL) Q2 2020 Earnings Call Transcript

U.S. Ecology (ECOL)
Q2 2020 Earnings Call
Aug 07, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the US Ecology, Inc. second-quarter 2020 earnings conference call. [Operator instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Eric Gerratt, chief financial officer.

Please go ahead, sir.

Eric Gerratt -- Chief Financial Officer

Good morning, and thank you for joining us today. Joining me on the call this morning are chairman, president, and chief executive officer, Jeff Feeler; executive vice president and chief operating officer, Simon Bell; and executive vice president of Sales and Marketing, Steve Welling. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements.

Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the Securities and Exchange Commission. These risks and uncertainties also include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the microeconomic impact of specific end markets in which we operate and our expectations for the financial results for 2020. Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made.

We undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.usecology.com. Throughout yesterday's earnings release and our call and presentation today, we refer to adjusted EBITDA, adjusted earnings per diluted share, cash earnings per diluted share and adjusted free cash flow.

These metrics are not determined in accordance with generally accepted accounting principles, and therefore susceptible to varying calculations. A definition, calculation and reconciliation to the financial statements of adjusted earnings per diluted share, cash earnings per diluted share, adjusted EBITDA and adjusted free cash flow can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results. We'd also like to point out that our second-quarter results include contribution from the NRC Group Holdings acquisition that closed on November 1, 2019.

Throughout this presentation, we often refer to NRC Group Holdings as NRC. We have also provided data on a stand-alone basis for US Ecology, which is referred to as legacy US Ecology. Similarly, for stand-alone NRC data, we refer to that group as legacy NRC. This disaggregation is an attempt to provide increased transparency and understanding of the underlying business.

With that, I'd like to turn the call over to Jeff.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Thank you, Eric, and good morning, everyone. I hope you and your families have remained safe during these uncertain times. Before I have Eric review the second-quarter results, I'd like to update everyone on how US Ecology is managing through the last few months, given the impact of COVID-19 to the economy and our customers. For those that are following on our webcast presentation, please direct your attention to Slide 6.

During the second quarter, in response to the COVID-19 pandemic, we took swift action to deploy safety protocols throughout our organization, mobilized 30% of our workforce to work from home. Using our established networks and expanding our procurement channels, we were able to secure valuable PPE to ensure that our teams and customers were properly protected. With our services deemed essential by the U.S. government, we implemented our business continuity plans and I am pleased to report that we have been able to remain operational during the entire pandemic thus far with no lost days.

This focus on safety, process and protecting our team members was critical in mitigating the spread of the disease, particularly in hot zones, where many of our team members are deployed. To safeguard the financial strength of the company, we implemented proactive and prudent measures to our operating plan, reducing costs and capital spending. Our capital preservation initiatives included a reduction of approximately 30% to our planned 2020 capital expenditures, the suspension of our quarterly cash dividend, cost controls including deferment of noncritical activities, elimination of discretionary spending and rightsizing the organization where needed. These actions are anticipated to generate up to $70 million of annual cash savings, providing the flexibility to preserve our talented workforce and position us to take advantage of the opportunities as the market rebounds.

These actions also supplement our strong operational cash flow generation, providing added financial flexibility as we navigate these unprecedented times. In fact, our free cash flow during the quarter almost tripled to prior year levels, allowing us to strengthen our balance sheet and improve our net debt position since the first quarter. During the second quarter, we amended our credit agreement to temporarily increase our leverage covenant through March 31, 2022, allowing for further financial flexibility. I continue to be thoroughly impressed with the dedication, execution and adaptability of our 3,500 team members who have continued to service our customers despite these unparalleled and stressful conditions.

They continue to provide safe and compliant solutions to protect human health and the environment, which is exactly what is needed today. This includes our COVID-19 Safe Operations Program, a new proactive cleaning and decontamination solutions package for commercial and government customers. This multifaceted program supports a full range of business needs to safely reopen and resume operations, including onetime or ongoing decontamination, preventative cleaning, and waste disposal services, all from one trusted partner. Through the end of July, we completed 1,700 COVID-19 responses which accelerated in late June and July as infection rates increased on reopening.

Looking at the quarter, we saw revenue declines across most business units compared with our budgeted 2020 expectations. As expected, the month of May was the low point, slightly below April levels. We saw a noticeable pickup in June as businesses started to reopen. Looking ahead, we are cautiously optimistic that we will continue to see sequential monthly improvement, barring any major pockets of the United States or Eastern Canada shutting down again.

Despite the external challenges caused by the pandemic, our teams continue to move the company forward through the execution of long-term strategic initiatives. Specifically, during the quarter, we completed the construction and expansion of our enhanced drum handling capabilities at our Nevada operation, which will allow for more efficient treatment; implemented five new retail account programs; implemented our Smarter Sorting retail technology pilot program in three key markets; deployed $4 million of capital on new high ROI growth projects; launched a new customer interface technology that we believe will be best-in-class for our customers to use our services, obtain data and manage their waste management needs; opened up our Global Emergency Response Operations Center; commenced the reconstruction of our Grand View stabilization building; focused on a number of environmental, social and governance initiatives, including advancing our diversity and inclusion program; and starting the operation of our Aerosol Recycling Technology. And these significant accomplishments were carried out while making material progress on the NRC integration efforts. This is just a small sample of what we've been doing during the pandemic.

Shifting to the highlights on the quarter from a financial side on Slide 8. My big takeaway for the quarter is the resiliency of our business model. Despite the headwinds and turbulence in many of the markets that we serve, including energy, the diversification of our services and collection of irreplaceable assets allowed us to continue to generate strong cash and produce solid financial results. During the quarter, total revenue was $213.9 million up 37% over the same quarter last year.

NRC contributed $70.4 million in the second quarter of 2020 and was down 19% sequentially from the first quarter of 2020. Legacy US Ecology saw a revenue decline of 8% compared to the second quarter last year and 7% decline sequentially from the first quarter of 2020. During the quarter, total company adjusted EBITDA was $38.7 million. Legacy US Ecology's adjusted EBITDA was down 6% when excluding over $2 million of insurance proceeds for business interruption claims recognized in the second quarter of 2019.

Sequentially, legacy US Ecology's adjusted EBITDA was up 8% from the first quarter of 2020. NRC contributed $5.2 million of adjusted EBITDA during the quarter, which included a $2.1 million adjusted EBITDA loss from our energy waste disposal services business which was hardest hit of all of our business lines. We reported an adjusted loss of $0.08 per diluted share, which included a higher than expected effective income tax rate due to the near breakeven results and included approximately $0.14 per diluted share of noncash amortization of intangibles related to NRC. As I mentioned earlier on, despite these softer results, we were able to increase our free cash flow to $18.7 million during the quarter, up from $6.5 million in the same quarter last year.

Diving into some more details on Slide 9. Legacy US Ecology's Environmental Services segment revenue declined 9%. Base Business was the primary contributor of that decline, down 10% from the second quarter last year and down 8% sequentially from the first quarter of 2020. We continue to see growth in our Event Business, which was up 12% year-over-year and up 2% sequentially from the first quarter of 2020, helping to offset some of the impact of the shutdown had on our Base Business.

We also were able to expand our Environmental Services segment EBITDA margin in the second quarter of 2020 by over 240 basis points to 44.1% compared to the same quarter last year. In our legacy Field and Industrial Services segment business, revenue declined 6% in the second quarter from the same quarter last year. Most of the service lines were negatively impacted by the pandemic shelter-in-place orders and related business shutdowns, especially those service lines that required our field teams to be on site. This led to an EBITDA margin contraction during the quarter.

A bright spot continues to be our strong growth in our small quantity generation services led by our retail services. Strong year-over-year growth in our retail services more than offset double-digit declines in other small quantity services like lab pack, LTL and household hazardous waste, which were more impacted by the shelter-in-place orders. Our emergency response business line also saw year-over-year increases as our legacy US Ecology operations responded to COVID-19 decontamination services, benefiting from the cross-selling efforts of NRC services, offsetting the lower industrial based emergency response activities. Despite positive developments in our business in June and into July, the evolving health crisis and its impact on local and regional business activity levels is resulting in a continued level of unprecedented uncertainty in the industrial economy.

As such, it continues to be difficult to provide 2020 guidance with any degree of accuracy. We do expect our second quarter will be the lowest quarter in 2020 with a healthy recovery anticipated in the second half of the year. Despite the second half recovery, operating results will remain below our original expectations we established pre-COVID. Many of our field services that were hit the hardest by the economic shutdown are expected to resume at an accelerated pace, but are not expected to recover to pre-COVID levels in 2020.

We expect our base business to continue its rebound at a slower pace, mirroring industrial activity. Partially offsetting expected base business softness will be continued growth in our Event Business on active shipments and a strong pipeline of projects expected to commence in the third and fourth quarters of this year. We expect industrial based emergency response services to increase as business activity level increases. This will be in addition to responding to the high demand COVID-19 decontamination events that have continued to accelerate as the infection rates rise as well as other weather and natural disaster responses.

We experienced in the second quarter — as we experienced in the second quarter, our energy exposed businesses that were the most severely impacted, and we expect them to be operating at near breakeven from an adjusted EBITDA basis for the full year in 2020. Despite the overall lower levels of business activities, we do not — we do expect to deliver strong year-over-year free cash flow generation in 2020 over 2019 levels. In summary, the financial flexibility of our business model, continued free cash flow generation, strong financial liquidity provided by cash on hand and available capacity on the company's lines of credit and the dedicated workforce will allow us to navigate these challenging times and position the company to quickly capitalize on opportunities for growth as business conditions begin to recover. With that, I'll turn it over to Eric for some more details.

Eric Gerratt -- Chief Financial Officer

Thanks, Jeff. As I cover the detailed financial review, I'll be discussing consolidated results that include NRC before I dive into the legacy US Ecology stand-alone results for the quarter and the full year. Starting with consolidated results on Slide 12. Revenue for the second quarter of 2020 was $213.9 million.

Revenue for the Environmental Services segment was $110.4 million for the second quarter of 2020 compared to $112.8 million in the second quarter of 2019. NRC contributed $7.3 million of Environmental Services segment revenue in the second quarter of 2020. The Field and Industrial Services segment delivered revenue of $103.5 million in the second quarter of 2020 compared to $43 million in the second quarter last year. NRC contributed $63.1 million of FIS segment revenue in the second quarter of 2020.

Total gross margin was 25% in the second quarter, down from 32% in the second quarter of 2019. Treatment and disposal margins for our Environmental Services segment were 39% in the second quarter of 2020 and reflected a loss of $2 million from NRC's energy disposal and services business. Gross margin for our Field and Industrial Services segment was 13% in the second quarter of 2020 compared to 15% in the second quarter of 2019. Selling, general and administrative spending, or SG&A, was $48.5 million and included $17.5 million for NRC as well as $3 million in consolidated business development and integration expenses.

This compared to SG&A of $26 million in the second quarter last year when excluding $2.5 million of business development expenses and the $4.5 million favorable property insurance recovery that was not repeated in the second quarter of 2020. Adjusted loss per diluted share was $0.08 in the second quarter of 2020 compared to adjusted earnings per diluted share of $0.66 in the same quarter last year. Cash earnings per diluted share, which adds back the per share impact of the amortization of intangible assets to adjusted earnings per share was $0.13 in the second quarter of 2020 compared to $0.75 per share in the second quarter of 2019. Consolidated adjusted EBITDA was $38.7 million in the second quarter of 2020, up 2% from the same quarter last year, reflecting $5.2 million from NRC.

This was partially offset by a 6% decline from the legacy US Ecology business when excluding $2.2 million of business interruption insurance recoveries in the second quarter of 2019. Shifting to legacy US Ecology results on Slide 13, revenues were $143.5 million in the second quarter of 2020 down 8% from $155.8 million in the second quarter last year. Our Environmental Services segment revenues were down 9% to $103.1 million on a 25% decrease in transportation revenue and a 4% decrease in treatment and disposal revenue. As Jeff mentioned, the primary decline in our treatment and disposal revenue was a 10% decrease in Base Business, partially offset by a 12% increase in Event Business in the second quarter of 2020 compared to the second quarter last year.

Legacy US Ecology Field and Industrial Services revenue was $40.4 million in the second quarter of 2020 down 6% driven primarily by lower revenues in our transportation and logistics and industrial services business lines, partially offset by strong growth in our emergency response and small quantity generation service lines. Gross margin for the legacy US Ecology business was 33% in the second quarter up slightly from 32% in the second quarter last year. Our Environmental Services segment treatment and disposal margin was 45% for both the second quarters of 2020 and 2019. Treatment and disposal margin for the second quarter of 2019 benefited by approximately $2.2 million in business interruption insurance recoveries that were not repeated in the second quarter of 2020.

Excluding this insurance recovery in the second quarter of 2019, we saw a 290 basis point improvement in the second quarter of 2020 on a more favorable service mix. Gross margin for the legacy US Ecology Field and Industrial Services segment declined to 11% in the second quarter of 2020 compared to 15% in the second quarter of 2019 on a less favorable service mix and lower revenues resulting from the shutdown. SG&A for legacy US Ecology was $29 million compared to $24 million in the second quarter last year. SG&A for the second quarter of 2019 reflected the favorable $4.5 million property insurance recovery that was not repeated in the second quarter this year.

The increase in SG&A for the second quarter of 2020 was also partially due to higher insurance costs and higher labor and benefits related costs compared to the second quarter of 2019. Legacy US Ecology adjusted EBITDA was down 12% to $33.5 million for the second quarter of 2020. This compares to $37.9 million in the second quarter last year. Looking at the first six months of 2020 for legacy US Ecology, despite the shutdown, we delivered strong results with year-over-year growth.

Revenue for the first six months of 2020 was up 4% to $297.6 million. This was driven by 4% growth in our Environmental Services segment and 4% growth in our Field and Industrial Services segment compared to the first six months of 2019. In addition to revenue growth, we were able to expand our gross margin by 68 basis points, which drove adjusted EBITDA to $64.4 million for the first six months of 2020 which was up 5% over the same period last year. Turning to Slide 15.

We exited the quarter with a strong balance sheet and strong liquidity. We had cash of $122.5 million and net borrowings of $739 million at June 30, 2020. This was an improvement over our balance sheet at March 31, 2020. Our operating cash flow increased to $59.5 million in the first six months of 2020, up 53% from $38.9 million in the first six months of 2019, driving our adjusted free cash flow up 86% to $34.6 million compared to $18.6 million in the first six months of 2019.

Looking at our overall debt position at June 30, 2020, we had approximately $69 million of available capacity on our revolving line of credit in addition to the cash on hand. Our total outstanding debt is $861.5 million which includes $448 million for our Term Loan B facility that matures in 2026 with only 1% required amortization or $4.5 million per year. The overall current average cash interest rate on our debt is approximately 3%. Our $500 million revolving credit facility has two financial covenants, a leverage ratio of our total outstanding debt and capital leases to our trailing 12-month bank calculated adjusted EBITDA and an interest coverage ratio.

As Jeff mentioned, in June 2020, we entered into an amendment of our credit agreement to temporarily increase the leverage ratio from 4 times to up to 5.5 times, depending on the quarter, before returning back to the 4 times level by the end of the first quarter of 2022. Our leverage ratio per the bank calculation at June 30, 2020, was approximately 3.8 times under the original 4 times level. Overall, despite the current market conditions and the COVID-19 pandemic, our solid liquidity and strong balance sheet will allow us to continue to operate the business with a long-term focus and position us for a strong exit from the pandemic. With that, I'll turn the call back to Jeff.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Thank you, Eric. In summary, I am very pleased with the quarterly results given the unprecedented conditions facing US Ecology and the world. The core legacy US Ecology business really demonstrates the resiliency of its collection of assets and services. NRC's businesses that are tied to the industrial markets held up well, and their emergency response expertise opened up new decontamination services that are in high demand today.

The NRC businesses that service the customers in the energy sector, frankly, got dealt a tough hand, one that goes beyond normal market cycles. I am pleased to see how our teams have rapidly redirected those business lines, taking costs out and prepare for the long term recovery which will occur. The quarter also showed strong cash flow generation potential of the combined company despite the lower anticipated results. The resiliency truly highlights the intrinsic value of the collection of businesses we have today.

Today, we are in excellent shape to navigate these turbulent conditions and create a sustainable future for US Ecology's team members and stockholders. In closing, I'd like to thank our team members throughout the organization, from the critical frontline workers to our leadership team, for their extraordinary efforts and their unwavering commitment to servicing our customers in these most trying of times. We remain focused on those things we can control so we can respond to the improving economic conditions and seize the growth opportunities that will ensue. With that, operator, we are ready to open up the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Today's first question comes from Tyler Brown with Raymond James. Please go ahead.

Tyler Brown -- Raymond James -- Analyst

Hey. Good morning, guys. Jeff, so you know that you completed some 1,700 decons, I think, year to date. But I'm just curious, was that maybe $10 million to $15 million in revenue? Or just any thoughts about the remainder of the year there.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. So year to date, which goes through basically July, we're about 1,700 completed jobs. There's a lot more in the queue that we've seen a lot of acceleration there. From a revenue perspective, I'm going to give you through just June, or I should say, second quarter's number.

It was about $12 million.

Tyler Brown -- Raymond James -- Analyst

Second quarter specifically?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. Year to date, we're running at about $14 million revenue trend.

Tyler Brown -- Raymond James -- Analyst

OK. Perfect. So I know you're not giving guidance. I completely get it, things are fluid, but I am hoping for at least a little bit of help, so kind of here I go.

But in the original $240 million guide pre-COVID, I think it was comprised of, say, $90 million from NRC. And I think that included, say, $40 million from Energy Disposal and about $150 million in the legacy ECOL. So as we sit here today, it feels like maybe there's a little bit, not a lot, but some friction in the legacy ECOL. The energy business has been crushed by softness factors, and that's probably no EBITDA.

And then the other $50 million of NRC also feels down, but then you also have some positives from the decon work. So if I'm following the bread crumbs, my logic is leading me on a path to somewhere in the high 100s for EBITDA this year. I know you're not giving guidance, but am I crazy off with my logic?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. So I'll give you a little bit of color around here. And the reality is what we see today may not be what we are seeing tomorrow, and I'm just going to caveat it that way. But you're directionally correct.

On the energy waste business, we thought that was going to deliver around $40 million of EBITDA this year. That definitely is going to be close or near breakeven on that. So that's taken right off the top of that. The legacy US Ecology business is holding up very well.

If you really — and this is a key thing Eric covered in there is that if you look at year-to-date results, we're up year-over-year on revenue as well as EBITDA. And it's holding well. We're seeing some positive signs. We would have probably been at a point of exceeding what we thought if COVID didn't happen.

Shifting to some of the NRC business, the ones that are tied to industrial activities are actually holding up well, and the ER services are holding up fairly well with the addition of the COVID work. What's been absent is industrial activity. That is what we're expecting to improve, come back in the second half of the year. So all in, we're not giving guidance.

And one of the things that we kind of looked at is, we've actually looked at what Street estimates are out there and we think that's a fairly reasonable estimate that's out there right now, and probably would be in line with what we would have given if we were to have given guidance. So that's where we're at now. We need a little bit more time and space, seeing what happens in Q3, potentially even in Q4 and how the pandemic progresses until we're ready to reestablish official guidance.

Tyler Brown -- Raymond James -- Analyst

OK. That was extremely, extremely helpful. Real quick, Eric, you proactively amended the credit agreement, I think, in late June. You ended the quarter at 3.8.

And by the way, does your credit agreement use some sort of pro forma EBITDA for NRC in the calculation? Because it just doesn't seem — the math doesn't line up. It feels north of 3.8.

Eric Gerratt -- Chief Financial Officer

Yes. So within the agreement and the way the covenant calculation works, there is — it's an adjusted — it takes our EBITDA, and then there are some adjustments. We get to take credit for things like some estimated synergies or assumed synergies for the next 24 months. We're able to take credit for some certain restructuring items that are considered those things.

So it's not just straight EBITDA that we report, there are adjustments to it in the covenant.

Tyler Brown -- Raymond James -- Analyst

OK. OK. Yes, that's helpful. But as EBITDA kind of snakes through over the next couple of quarters, I mean, do you think that, that leverage ratio is going to remain somewhat steady? Or do you think it's going to kind of crest over the next couple of quarters?

Eric Gerratt -- Chief Financial Officer

Yes. As we look at it, and again, not giving guidance, but as we look at our models and various sensitivities, what it currently shows for 2020 is that we will probably crest at the end of the third quarter and then come back down a bit in the fourth quarter based on what we see today. We haven't done a lot of work on 2021. We've done some high-level work.

But as you look at it, and we put, I put a slide in the presentation today, I think it's Page 16, that kind of shows you the step-up in the amendment that we did and it shows that the credit agreement with the new amendment gives us the highest level at the end of Q1 in the 2021, which I think is where we probably crest because typically, Q1 is where we write-up the highest. But that trend, and as you look at that slide and how that flows up, that's kind of in line with, again, what we expect right now at a high level with a fair bit of cushion built into that covenant level.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

I'll just add, Tyler. We negotiated cushion.

Eric Gerratt -- Chief Financial Officer

We definitely did.

Tyler Brown -- Raymond James -- Analyst

Yes. No, it definitely seems like it. But real quickly on the capex, so do you have kind of a good number there? Is it $60 million to 65 million? Or maybe my math is way off, I'm not sure.

Eric Gerratt -- Chief Financial Officer

Yes, yes. Yes, Tyler, we still think it's in that range, $60 million to $65 million, which is which is around 30 million less than what our initial guidance for the year was.

Tyler Brown -- Raymond James -- Analyst

OK. And just one last one. So you mentioned it upfront, but where exactly is Grand View? So I think in the original guide, you guys were budgeting something like $7.5 million for that build. But to date, you've only spent like, call it, $2 million.

I don't — maybe it was back-end weighted, it always has been back-end weighted, but did it get pushed out? Or are you not going to spend that money? I'm just curious what's kind of going on there?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes, we started the construction of the stabilization building in the second quarter. We expect it to be done November, December timeframe. Range is about what you said. There's still some additional insurance recoveries on that building in there.

And so that's in the $60 million to $65 million of cap spend this year. We had originally thought we were going to push that off into 2021, but the reality is, is that we wanted to get that up and operational and really take a long-term focus, and I credit Simon to really pushing that forward.

Tyler Brown -- Raymond James -- Analyst

OK. Great. But that is in the $60 million to $65 million?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

It is, yes.

Tyler Brown -- Raymond James -- Analyst

OK. All right, guys. I appreciate the time. Thank you.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Thanks, Tyler.

Operator

And our next question today comes from Michael Hoffman with Stifel. Please go ahead.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Hey, Jeff, Eric. Thanks for taking the questions. Hope you guys are doing well. So cost cuts that were achieved in the second quarter, given the trends you're seeing, what should we expect that reverses in maybe like bonus accruals, stuff like that? And what do you think you get to keep? And another way to sort of word that is, do you think you've permanently moved up at least the low end of your incremental margins?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

So yes, Michael, I think so. I mean it's — certainly a lot of our — the cost savings that we've experienced so far are going to be temporary, things like travel. Obviously another big component is the financial component of our incentive plans which are going to be a fair bit of savings this year. But we have done some structural things, the largest of which are obviously in the energy waste disposal business, the former Sprint business.

If you look at what we've done there in terms of rightsizing the labor force, in terms of returning a lot of equipment that's been on rental and things like that, if you look at that annualized savings number kind of going forward, that number is in the $20 million, $25 million a year range. And so pretty meaningful, pretty significant that, that would be structural pending the market completely turning around, us needing to rehire people, get cranked back up. But in the meantime, that's probably the area of the most meaningful structural reductions.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And you don't anticipate a reversal of any of the incentive comp accruals by the end of the year based on what you have as line of sight in the no-guidance guidance?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

That's correct.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. What would it take for those to come back? Like as a percent of the 240 original, where would you have to land for you to have the incentive comp come back on?

Eric Gerratt -- Chief Financial Officer

So for the lowest level on most of our incentive comp plans for the financial component, they start to pay out in the 80% to 85% of the target range. So we'd have to be in the 80%, 85% of that, call it, 240 EBITDA, which puts you right around 200.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Got it. And then within the free cash flow backstop, which we appreciate, sort of round number, $50 million. Should we assume we take 100% of that and pay down debt with it?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. Michael, our capital priorities are going to be — we're going to continue to invest the capex that's in there, but then we will be delevering the business.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And is there any timing related to the flow of that cash for the rest of the year? Or are there some oddities around cash tax payments, cycles or interest payments so we don't find ourselves on a negative in the third quarter going, "Oh my goodness, you're not going to be able to do the 50," because of the timing of stuff like that?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. As we kind of look at it for the year, I think third quarter will likely — free cash flow for the third quarter will likely be down quite a bit from the second quarter. I don't think it will be negative, but it will be a lot lower than the second quarter and then a really strong fourth quarter is what I'm expecting.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. If you can talk about you shouldn't do anything less than the F'19 free cash, does that put us in a situation where we're basically finishing the year at no less than overall business, F'19? And then whatever the state of the world is, there's — we're back to 3% to 5% base growth? Event Business is pretty regulated-driven so it's not a lot of discretionary and your industrial business is finding a leveling off, and I'm back in that 3% to 5% kind of zone plus whatever is happening in retail growth. Is that the right way to think about it conceptually?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes, barring the pandemic and its impact there. I mean, I think that is a reasonable way to think about it. That's the challenges I think most businesses are having today is that we're battling something that is unknowable and is outside anybody's core expertise on here and its impact to the overall economy. But that's probably a good way to think about it.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

And in the Field and Industrial Services and the industrial weakness, it was in 2Q, are there particular — like I'm assuming auto was — exposure in 2Q. So that gets — they're back online, maybe not at high levels of production, but they're back online, and that's one of the comebacks. But are there better end markets that stood out particularly that were disrupted as either nonessential or made decisions to close and now are back online?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes. Actually, I think it's more across-the-board. I mean you call out autos. Yes, we had a forced shutdown, and we almost had 100-plus people furloughed on there.

All of them are back to work, all the plants are up and operational. And so that was a comeback in June, and it's continuing to be good in those business lines. When you start talking about where we saw a lot of — on the Field Services side is where, say, lab pack, where you didn't — you had customers that didn't want us on site. I mean they had their own protections in place, so they weren't doing business.

And so those are starting to come back in there. And that's where on the Field Services side in the second quarter we saw most of the most of the drag.

Eric Gerratt -- Chief Financial Officer

The other one, Michael, we saw a pretty significant drag in the second quarter was — and again, this is for Field and Industrial Services, on the transportation and logistics. Just a lot less or fewer opportunities as things were shut down on the transportation side from the services perspective in the second quarter.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And then the emergency response piece of NRC, it's typical, business has been 15,000, 20,000 of these small little spills. It's outbreaks, to tank leaks or truck leaks, things like that. How do you see the pattern of that trend sequentially? Is it consistent with the onboarding again of the customer broadly? Or is it more — is it a big customer exposure? Small customer exposure? I'm just trying to understand how to think about influences.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

It's really miles driven. I mean if you really get to it, most of those accidents and occurrences on the ER side is from transportation mishaps. And we have seen recovery in all of that. It's nowhere near pre-COVID levels.

And so the positive sign is that we are seeing a recovery. But, I mean, I don't know where you're at in the world, but our transportation levels are a lot down from a traffic pattern perspective in almost all of our markets that we've seen.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

So this is the total country vehicle miles traveled and lots of cars on the road and they — results in accidents? Because vehicle miles traveled are off the bottom. There's a 70% recovery off the bottom, but we're still well below historic levels in rush hour, things like that or nowhere near back. That's what you're referring to?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

That is what I'm referring to, and we actually started seeing all of that, and that started recovering in June, and we started seeing our — what I call industrial activity ER services, that's been consistently going up, and we continue to see that in July as well.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And then lastly for me. Remediation in that Field and Industrial line has got to be highly discretionary. So it kind of is a canary in a coal mine.

What's happening with that?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

It's actually trending up. This kind of correlates a lot to our Event Business on the waste side. Remediation is very similar. We are not seeing customers pulling projects.

We're actually seeing a lot of customers bringing bid proposals and things to the table. So second half of the year for our remediation group is trending really positive right now with a number of contracts that we've won and are planned to go. So that's the irony in all this is call it, manufacturing down slightly just from the shelter-in-place and things like that, things that are on construction sites, remedial activities, things like that. It continues to move.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

All right. And then last for me. On the retail side, are there any major bids outstanding that could lead to ongoing incremental growth here at this healthy double-digit pace?

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Sure. Steve, do you want to address that for Michael?

Steve Welling -- Executive Vice President of Sales and Marketing

Sure, Michael. We actually have four new awards that are kicking in. They started in second quarter, but should benefit second half, probably more than $9 million to $10 million just in ramping over the next few months. So yes, we are having success there, and we see future growth over the next couple of years.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Thanks. Thanks for taking questions.

Operator

[Operator instructions] Today's next question comes from Jeff Silber with BMO Capital Markets. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. In your prepared remarks, when you talked about the Event Business, you mentioned the strong pipeline. Can we get a little bit more color in terms of the type of projects in that pipeline and what you're expecting? Thanks.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes, Jeff. I'm going to let Steve address the Event side.

Steve Welling -- Executive Vice President of Sales and Marketing

Yes. So there's a combination of things. We have multiple radioactive projects going to our sites in Idaho and Michigan. We have some court-ordered cleanups with waste streams like mercury and lead and chromium.

So it's a combination of things, but we're not seeing any slowing there. The pipeline remains strong and we continued on quite a few of these projects over the last six months without much delay.

Jeff Silber -- BMO Capital Markets -- Analyst

And when you have those court-ordered projects, those are considered essential even if it's in areas that are locked on, that's still something that you're be able to do?

Steve Welling -- Executive Vice President of Sales and Marketing

Remediation in a lot of areas is considered essential when you're cleaning up the environment. One of the reasons that some of these companies have continued to handle the work is if you think about other parts of the economy being shut down, there's not as much traffic. You can get in and do the remediation without all the same concerns. You can actually go faster, which means the remediation company is making more money.

They're able to move trucks without all the controls because there's not the same level of traffic or concern as if things were moving at full pace.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. That's actually very interesting. And then just a quick numbers question. Your free cash flow is really strong.

Were there any specific items to call out in the second quarter? Like I'm assuming there was a payroll tax deferral. Anything else like that would be great.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Yes, Jeff. We did and are taking advantage of the payroll tax deferral, which we think for the full year in 2020 is going to contribute about $8 million of free cash. And so a portion of that, obviously, is in there. The other piece that we saw — or one of the big drivers that we saw is we've actually — from a working capital perspective, we had a pretty strong quarter in the second quarter.

Really good collections. We're monitoring collections very closely as is everyone and fingers crossed, things are still going very well from that perspective. And so you've seen some working capital pickups around our receivables and going the other way around the payables as well. So I would say that was one of the biggest drivers is just working capital and focusing and really getting — doing a great job from a collections perspective.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Great. Thanks for the call appreciate it.

Operator

And our next question today is a follow-up from Tyler Brown at Raymond James. Please go ahead.

Tyler Brown -- Raymond James -- Analyst

Hey. reat. Thanks for the call appreciate it.I'm not sure if Simon is on, but I have an operating question. So pretty much all of your rail partners have implemented precision scheduled railroading.

I know you're a heavy rail user. I'm just curious what you're seeing from a rail service perspective. Are you seeing better turn cycles? Is that driving costs down? Or are you guys rethinking your gondola needs?

Steve Welling -- Executive Vice President of Sales and Marketing

I would say it's really been steady as she goes. I mean thinking back on our projects that we've seen improvement, I can say I haven't heard many issues, and I think they've been moving projects. They've been moving at pace. So I'd say it's really been very consistent.

Tyler Brown -- Raymond James -- Analyst

I appreciate. I just was curious. Thank you.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Jeff Feeler -- Chairman, President, and Chief Executive Officer

I'd just like to end the conference by thanking those who are attending and hopeful that you all stay safe during the pandemic. And looking forward to updating you next quarter.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Eric Gerratt -- Chief Financial Officer

Jeff Feeler -- Chairman, President, and Chief Executive Officer

Tyler Brown -- Raymond James -- Analyst

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Steve Welling -- Executive Vice President of Sales and Marketing

Jeff Silber -- BMO Capital Markets -- Analyst

More ECOL analysis

All earnings call transcripts